Thursday, July 28, 2011

Federal authorities have charged 18 people in a boiler room scam, accusing them of bilking investors out of millions of dollars, according to the U.S. Attorney's Office. Federal authorities arrested a total of 12 defendants; three persons in Florida and nine people in Southern California. A former CIA agent who ran a Burbank movie company called Q Media Assets has already pleaded guilty to conspiracy, mail fraud, and tax charges in relation to the fraudulent boiler rooms.

From early 2004 to May 2009, the alleged scam solicited $25 million in investments for independent films through the use of fraudulent boiler room telemarketing operations. Cinamour Entertainment LLC and Q Media Assets LLC retained the services of telemarketers to cold-call individuals, asking them to invest in various indie film projects. By way of fraudulent pitches and false promises, these entertainment companies were able to collect millions from their victims. The targets of this scam were the elderly according to Assistant U.S. Attorney Stephen Cazares, because “they are at home and they pick up the phone.”

According to the government, the boiler room operations promised investors up to 1,000 percent returns and maintained that 93 percent of investor money would be used to produce and promote the films. The telemarketers ultimately misrepresented to investors how their money would be spent, including the telemarketers’ failure to disclose that they would receive commission. Some of the investors were even promised movie credits. Despite these promises, in reality, some of the indie films for which money was solicited were never produced. According to Cazares, “The misrepresentations were enticing. Part of the attraction was the aura of movie-making and Hollywood.”

According to the U.S. Attorney’s office, in June of 2011, a federal grand jury returned two indictments against eighteen individuals for these fraudulent boiler room telemarketing operations. The first indictment concerned Cinamour’s activities. Cinamour raised over $15 million from 450 investors for the indie film, From Mexico with Love, but only $5 million of the investments were actually used to produce and promote the film. Cinamour further collected $2.7 million for Red Water, which was never even made into a film. The second indictment concerns Q Media’s activities, which included raising $5 million from 250 investors for Eye of the Dolphin (now called Beneath the Blue) and $4 million for its sequel, Way of the Dolphin, which went straight to home video. Little of the funds raised were used to produce these indie films, instead nearly 1/3 of the investment money alone went directly into the pockets of the telemarketers.

Ultimately, Cinamour was charged with 45-counts of illegal activity, including mail fraud, wire fraud, sale of unregistered securities, money laundering, conspiracy, and tax evasion. Q Media’s 33-count indictment similarly charged defendants with these crimes. The charged individuals could face serious jail time if found guilty of the allegations. Conspiracy, the sale of unregistered securities, and tax evasion each carry a maximum of five years in federal prison. Money laundering, wire fraud, and mail fraud carry even harsher prison sentences. If convicted of money laundering, the individuals could face up to ten years in prison and if found guilty of mail and wire fraud, they could be in federal prison for a maximum of twenty years.

Keri Putnam, Executive Director of the non-profit Sundance Institute, announced an expansion of the Institute’s Artist Services program, which enables Sundance Institute artists to reach audiences, raise funding and receive support through an educational and resources site.

Filmmakers can now make their films available online to consumer markets via iTunes, Amazon, Hulu, Netflix, SundanceNOW, and YouTube while still retaining ownership of their work and making independent decisions about strategies for each outlet. Each partner will identify and promote these film projects to their audiences, while in turn, the Institute will endorse their availability through its own marketing and promotional efforts and through the vast social community developed by the Institute.

New Video, the Institute’s exclusive aggregation partner for distribution across these portals, will offer all eligible Sundance Film Festival and Lab titles a unique gateway to digital distribution that emphasizes filmmaker ownership and control.

In addition, the Institute has also entered into a deal with Topspin Media to provide its artists with direct marketing tools and fulfillment services. Topspin is a direct marketing and retail software platform for musicians, filmmakers and authors that provides tools for independent artists to increase awareness of their work and build relationships with fans.

Among the first films and filmmakers to use these services will be two selections from the 2011 Sundance Film Festival: Connected: An Autoblogography about Love, Death & Technology by director Tiffany Shlain, which premiered in the U.S. Documentary Competition section and On the Ice, by director Andrew Okpeaha MacLean, which premiered in the U.S. Narrative Competition section.

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About Me

A veteran entertainment lawyer, arbitrator, expert witness and author, Mark Litwak has provided legal services or acted as a producer rep on more than 100 feature films. He is the author of 6 books including: Reel Power, Dealmaking in the Film and Television Industry (winner of the 1995 Kraszna-Krausz Book Award), Contracts for the Film and Television Industry, and Risky Business: Financing and Distributing Independent Film. He is also the author of the popular CD-ROM Movie Magic Contracts.
As a law professor, he currently teaches at the U.S.C. School of Law, and has previously taught at the Univ. of Puget Sound and Loyola Law Schools. He has been on the faculty at UCLA for 24 years. He has lectured for the American, California and Texas bar associations. A frequent speaker, he has lectured at many universities including Harvard, the American Film Institute, Columbia University and NYU. He has also presented movie industry seminars in England, Australia, South Africa and Canada.
Mark Litwak is AV®
Peer Review Rated by Martindale-Hubble and has been named a Superlawyer multiple times by the publishers of Law and Politics Magazine.